General John W. Handy is retired U.S. Air Force, and Michael Johnson is the President of Parsons Infrastructure. Both are members of Securing America’s Future Energy’s (SAFE) Energy Security Leadership Council (ESLC).
This article was originally published in The Hill on May 15, 2018.
Iran and the status of international sanctions on the country’s oil exports are one of the clearest indicators of the intrinsic links between U.S. oil dependence and foreign policy. Oil prices have already risen 67 percent in the last 11 months, to over $70 per barrel, due to nearly two years of coordinated cuts by OPEC and Russia, and rising geopolitical risk.
As we enter summer driving season, increased gasoline prices threaten to eliminate the take-home benefits of the president’s tax cut.
As we enter summer driving season, increased gasoline prices threaten to eliminate the take-home benefits of the president’s tax cut. Now policymakers must address both the supply- and demand-side solutions. These include increased domestic production and maintaining fuel economy standards to help reduce our reliance on oil.
Now that the EPA has formally announced a decision to revisit the standards completed in the final days of the Obama administration for vehicle model years 2022–2025, efforts have begun in earnest to make a decision about the future of these rules. Those decisions would impact both the health of our auto industry and our long-term economic competitiveness. As we witness growing uncertainty in the Middle East and experience the impact of rising prices at the pump, EPA Administrator Scott Pruitt must grasp this opportunity to protect American businesses and consumers by optimizing, not weakening, fuel economy standards.
The U.S. consumes one-fifth of daily global supply and has a transportation system that is 92 percent dependent on oil, leaving our economy exposed on both the supply and demand side to an opaque, volatile, and unfree oil market.
The U.S. consumes one-fifth of daily global supply and has a transportation system that is 92 percent dependent on oil, leaving our economy exposed on both the supply and demand side to an opaque, volatile, and unfree oil market. The most recent example was in 2014 when Saudi Arabia and the other OPEC members maintained high production levels in response to U.S. shale. The result was debilitating for the domestic energy industry: The price of oil fell from $140 per barrel in June 2014 to $26 in February 2016, pushing over 220 oil companies into bankruptcy and taking 150,000 jobs with them. But we are even more exposed when oil prices rise: Every 1 cent increase in gasoline prices defers $1-2 billion in consumer spending, and every economic recession has been preceded by or concurrent to an oil price spike.
Since they were introduced in response to the 1973 oil embargo, fuel economy standards are the single most impactful policy we have in protecting ourselves from oil price volatility—we cannot achieve President Trump’s goal of “energy dominance” without them. According to the EIA’s latest numbers, the U.S. achieves net oil exports of around 1.45 million barrels per day (Mbd) in 2022. If we maintain current standards, by 2030 we will export nearly 4.2 Mbd—but without having the current fuel economy standards, first put in place in 2007, that number would be only 1.47 Mbd.
Since they were introduced in response to the 1973 oil embargo, fuel economy standards are the single most impactful policy we have in protecting ourselves from oil price volatility.
To bridge the existing divides, the EPA should work to maintain a rigorous, unified standard, but also to account for the innovation that has taken place since the current rules were established in 2012. Deploying existing advanced driver assistance technology, which smooths driving patterns and prevents crashes that result in congestion and fuel waste, has upper bound potential fuel savings of 18 to 25 percent. Just as urgently, these same existing technologies would save 9,900 lives every year if equipped on every car. EPA and NHTSA must also encourage alternative fuel technologies that can mitigate oil’s monopoly as a transportation fuel by preserving credit multipliers that apply to electric vehicles, and incorporate other advanced vehicle technologies.
An oil supply disruption anywhere impacts prices everywhere. Regulators cannot ignore our persistent energy security risks, and if the U.S. is to insulate itself from global oil price volatility, Administrator Pruitt, the National Highway Traffic Safety Administration, the auto industry and California must lean forward as the United States pursues “energy dominance.” This important goal cannot be achieved without a strong, unified national fuel economy standard—and existing technology provides a promising pathway to achieve it.